ESOP Guy

I have an ESOP client that normally makes you wait 5 years in order to get a distribution via 5 installments. They however have a provision that if a person terminates and then is ruled disabled they can be paid the year after the disability ruling. I just took over this plan. A person terminated in 2012. They were ruled disabled in 2014. They got their first payment in 2015. The firm that prepared the 1099-Rs in the past gave this person a code of 3. I am just not finding any guidance on this. Do you have to terminate because of disability or merely be paid because of disability in order to get a code of 3? It matters as the person is <59.5. Back when I did 401(k) plans if a person terminated and refused to take a distribution for years and then became disabled I don't recall making such a person a code 3. Thanks

You can talk to the plan administrator and see if they are willing to look into it. This would be an informal process. If you don't have any satisfaction via that conversation the Summary Plan Description ought to give you the details you need to make a formal claim. That will set in motion a process that will require them to give you a written response as to what their position is regarding your claim. What you describe is a difficult situation. If the disability was ruled as being in effect as of the date of your termination you MIGHT have a point. If the disability happened after the date of termination then it will be irrelevant.

Don't forget the look back year for ownership. So if the stock was sold in 2017 those people could by HCEs in 2017 and 2018. In 2017 as a current year owner and 2018 as a look back year owner.

If there needs to be testing or not is a complex issue. It is true that if an ESOP owns 100% of the stock there are no individuals who are shareholders. The trust owns the shares not the individuals. If the stock was sold during 2017 as long as a person owned the stock for 1 day they were a shareholder in 2017 for this purpose. You can be an HCE by compensation also. It is hard to imagine there are no officers in a company so it is a question of compensation for Key Employee. Oddly, this could mean you have a bunch of former Key Employees for the TH test also.

I haven't seen it from a court but I have seen plenty of states that are trying to collect child support demanding nothing get paid until they get a QDRO to get the child support in place.

Your confidence wasn't misplaced it turns out.

As you just found out with the loan question it depends in the end what the plan says. The law would allow it assuming you have a hardship that qualifies. So ask Vanguard the question.

To make sure you understand what Austin is saying the law defines the maximum amount a loan can be from a qualified plan. The plan document can always set a lower limit. The most common example of plans doing so is they never use the $10k limit for the reasons he stated.

it seems like they did not bother asking their ERISA experts what they think of this provision before writing.

It would be interesting to know if those D's that didn't work are from back when all SSA's were entered manually by the government. It really hasn't been all that many years it seems like that there was a good way to electronically submit these forms. I know I had some large clients that there SSA was many pages of paper someone had to enter. Easy to see a typo to someone just not bothering with all those D's.

As another side note you are talking HCEs but it is my understanding a divorce doesn't make the ex-spouse a former Key. Or put another way you can't make a TH plan not TH by the owner getting divorced and splitting their assets with an Alt Payee.

My one and only experience with a qualified plan and these kinds of issues was a bank teller stealing from the bank. The bank had an ESOP. What the bank's lawyer's did was talk to the prosecutor and convinced them to make as part of any plea bargain the lady had to repay the stolen funds. Since the only large asset she had was the ESOP balance part of the court agreement was she faced less jail time if she agreed to take an ESOP distribution and cash the check at the bank. She then gave the money to the bank of her own "free will". I know of no way to force the money from her account or stop the payment on the plan's authority only. In my opinion the company needs to try and get the prosecutor to convince the defendant it is in their best interest to at least do nothing at this point with the money in the 401(k) plan so it leaves open that is a bargaining chip they have when it comes time to see what kind of deals can be made.

Rather has it 100% correct.

I have never seen it done and can't cite anything saying "yes" or "no". I know so far no help am I? There is one practical question that comes to mind quickly. If these are catching up pre-tax 4k deferrals isn't' the money used to write a check after-tax? If so, isn't she setting herself up to pay taxes twice on the money? Or is the plan to note a basis in her account? But if the plan is treating this as after-tax money does the plan allow that source in the plan?

I would recommend not starting with a lawyer they are going to cost you a lot and it isn't clear at this point they will be able to do much for you. The loan rules are very strict and they really don't care whose fault it is if you loan goes into default what happens happens. Here are the steps I would take: 1) I would have your husband talk to someone in management that has responsibility over the plan inside the company he works for. If they decide it was their fault and they have an obligation to do right by your husband they can take a number of actions to get this corrected. If this happens you might like the result and you haven't spend a bunch of money. If the company is willing to spend some money on lawyers to fix this (at their cost not yours) there MIGHT be a complete fix of the whole problem. 2) If that seems to not be working out for you and then I would go to the Dept of Labor (DOL). They have Benefits Advisors that can help you by contacting the company. They do not look favorably on loan payments not being deposited timely. The point isn't to get the company in trouble to get things resolved. It is the government so it isn't the fastest process in the world but it doesn't cost you anything. I believe this is the correct link. https://www.askebsa.dol.gov/WebIntake/Home.aspx 3) Only after this would I go to the expense of a lawyer. It would be an ERISA lawyer you would need. By the way I am with Nate X the way you describe the facts is confusing so before you get a lawyer you might want to make sure you have the facts correct. Good luck feel free to come back here if you need more advice there are plenty of retirement experts here. Also, wouldn't mind an update if you ever resolve this.

To answer your question I know of no source besides the plan sponsor or the old TPA (if any). I also find we have no issues if we keep with my philosophy of, "when in doubt D" on an SSA.

You found the right place to find people who can help but your question is kind of a mess. So allow me to start helping by asking some basic questions: 1) You say this plan is a ROBs but it has no assets. That doesn't make sense it would seem like the plan has to at least have the company stock in it as an assets. It might not be worth very much given the facts you are saying but it seems like it ought to at least have one asset in it the company stock. Is that true there is still company stock in the plan? 2) You talk about filling out a census for every employee. So you have employees on your payroll? If so, are there any employees that are NOT family members? Let's start there and you might find others will ask a few other questions. But based on those answers we can either start to answer your questions or have a better sense what the follow up questions need to be. I would also point out this forum is mostly populated with people who work in the retirement field. I just so happen to stop by here this weekend. You will get most of your answers Monday not on the weekend as most people (myself included) rarely stop by on the weekends.

I once had a client where both the 5500 and 8955 was late we filed the 5500 under DFVCP and followed the instructions for the 8955 and it went smoothly. I have never re-filed the 5500 and then the 8955. I do know the IRS does check to see if you file the 8955 if an auditor comes out to look at the 5500. However, since it is possible to not have an 8955 due for any year they can't know if the form wasn't filed because it was missed or there was no one to report. So there is always opens up the idea of playing the audit lottery and report the missed people on the next 8955 and call it quits. I guess there is a chance that will leave the client open to a fine but if you can show they are on the next form some auditors might take the no harm no foul position. It is known costs vs unknown level of higher cost but also no cost is possible out come.

No Here is cite:

Sorry wrote that last sentence wrong: If someone thinks you can't force out <$1k to an IRA please speak up. There wasn't any doubt in my mind you can force such a person out.

It might be due to the fact all ESOPs are custom documents but 99% of all ESOPs I deal with get a letter upon termination. I was always taught these letters were cheap insurance even when I worked on 4k plans. I always thought there were reasons to believe a plan that had a letter was less likely to be audited after the termination then one that didn't get the letter. There used to be a question on the 5500 way back also.

It seems to me there are a lot of answers here but almost no one is directly answering the actual question. Can you write a plan provision that say anyone with a balance over $0 and <$5k be forced out to an IRA? We are assuming they got a form and did not reply. I am not aware of anything that say you can't do it. I haven't ever seen it done but all the law I have read say if you force out $1k - <$5k it has to be an IRA but I have never seen anything that say you can't force <$1k to an IRA. If someone thinks you CAN"T force out <$1k speak up please.

Actually the comment about the Key is interesting. If there is one Key and one non-key HCE and the Key gets 60% of the assets is the other HCE due a TH minimum? Might be a fact set that doesn't happen much but seems like it is "yes" the one HCE would be due a TH minimum.

Just curious does he really make the IRA limits too low? If not that seems easier but I don't see any law that stops this from happening.

Can be done sure. Is it prudent is the better question? Those small amounts and the IRA fees need to be thought about. If the plan is confident they have a good address for the person what is better for the participant sending them a check to an IRA that is going to eat the benefit up in a matter of a few years in fees?